OREANDA-NEWS. Fitch Ratings has assigned expected ratings to Jiamei 2016-1 Residential Mortgage-Backed Securities' (Jiamei 2016-1). The issuance consists of notes backed by residential mortgages in China originated by Postal Savings Bank of China (PSB). The ratings are as follows:

CNY500m Class A1 fixed rate notes: 'A+(EXP)sf'; Outlook Stable

CNY900m Class A2 floating rate notes: 'A+(EXP)sf'; Outlook Stable

CNY1,908m Class A3 floating rate notes: 'A+(EXP)sf'; Outlook Stable

CNY156m Class B floating rate notes: 'BBB(EXP)sf'; Outlook Stable

CNY353m Subordinated notes: NRsf

The ratings of the class A1, A2, and A3 notes (together the class A notes) address the timely payment of interest and ultimate payment of principal. The rating of the Class B notes addresses the ultimate payment of interest and ultimate payment of principal.

The notes will be issued by CITIC Trust Co., Ltd in its capacity as trustee of Jiamei 2016-1.

At the cut-off date, the total collateral pool consisted of 9,441 first-ranking Chinese residential full-documentation mortgage loans with outstanding balance of CNY3,816.7m (USD573.9m) and weighted average loan-to-value ratio (LVR) of 57.8%.

In addition to its published rating criteria listed below, Fitch's analysis also incorporated China-specific assumptions in applying the APAC Residential Mortgage Criteria. Fitch derived a single default probability assumption for PSB loans from historical data provided by PSB as well as publicly available data from other Chinese banks and RMBS transactions. Fitch is comfortable that eligibility criteria for the transaction ensure that the securitisation will perform as least as well as the total PSB portfolio. Loss severities were derived from historic national property price data and made specific to the location of each security property. In addition Fitch made adjustments for any geographic concentrations in the portfolio.

KEY RATING DRIVERS

Sufficient Credit Support: The class A notes have sufficient credit enhancement of 13.3%, provided by the class B and subordinated notes. The rating of the class B notes is reliant upon the credit support of 9.2% provided by the subordinated notes.

Conservative Pool Characteristics: The weighted average (WA) seasoning is 2.43 years, with a WA original LVR of 63.3%, WA current LVR of 57.8% and WA current indexed LVR of 55.8% as of the cut-off date. The average current loan size is CNY404,266 (USD60,792). There are no interest-only loans and all loans are fully amortising and are limited to a maximum 70% initial LVR.

Sequential Paydown Structure: Principal collections are paid sequentially towards the class A notes, class B notes and then subordinated notes. This allows for the build-up of credit enhancement to the senior notes as the transaction amortises.

Performance Trigger Protects Class A: A performance trigger is set at cumulative default rates of 8%. If the trigger is hit, interest payments on class B notes will be deferred and all collections will be used to pay the most senior notes outstanding until the Class A notes are paid in full.

Sufficient Liquidity Support: Liquidity support will be provided by a principal draw mechanism and a liquidity reserve. The liquidity reserve will be maintained at 2 times the monthly senior expenses and interest on the rated notes (for Class B notes subject to the cumulative default rate trigger).

Rating Cap: Fitch has capped the rating of this transaction at 'A+sf'. The cap reflects the limited history for housing loans and RMBS in China and reflects that the data set available for analysis is limited in scope (it only contains data through good economic periods) and breadth in that granular data by loan characteristics was not available in sufficient volume for Fitch to identify individual drivers or factors that may impact the performance of individual underlying loans.

EXPECTED RATING SENSITIVITIES

Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case, and are likely to result in a decline in credit enhancement (CE) and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base case assumptions.

The analysis found the class A1 and A2 notes' ratings remained stable under each of Fitch's medium and severe individual default and recovery scenarios (15% and 30% increase in defaults or decrease in recoveries from Fitch's base case, respectively). The rating of the class A3 notes is susceptible to a rating downgrade under the medium and severe increase in default stresses, but stable at the medium and severe decrease in recoveries. For the class B notes, the ratings remain stable under both the medium and severe stresses for each of the increase in defaults and decrease in recoveries.

In combined medium (both 15% increase in defaults and 15% decrease in recoveries from Fitch's base case) and severe (both 30% increase in defaults and 30% decrease in recoveries from Fitch's base case) stress scenarios, ratings remained stable for the class A1 and A2 notes, while the class A3 notes may be lowered by one notch to 'A(EXP)sf' in a medium stress scenario and by two notches to 'A-(EXP)sf' in a severe stress. For the class B notes, in a combined severe stress scenario, the rating may be lowered to 'BB+(EXP)sf'.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by PSB compared to PSB's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.

Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would impact Fitch's rating analysis.

Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Jiamei 2016-1 Residential Mortgage-Backed Securities", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.